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China Says Growth Target in Reach Despite Rare Investment Drop

China Says Growth Target in Reach Despite Rare Investment Drop

Financial News
China Says Growth Target in Reach Despite Rare Investment Drop

China has been riding a wave of momentum from record exports, powered by global demand for its manufactured goods that’s kept headline growth near the government’s target despite another trade war with the US. Still, vulnerabilities lurk throughout the world’s second-biggest economy, as deflation and excessive competition eat away at company profits while consumer demand struggles to recover from the housing market crash.

The rare drop in investment exemplified the weak sentiment pervading the economy. The contraction was mainly driven by the slumping real estate sector, while capital spending in infrastructure and manufacturing also slowed.

Infrastructure investment expanded only 1.1% in the first three quarters of this year from a year ago, the worst reading for the period since 2020. Manufacturing investment pulled back from the almost 10% expansion rate earlier this year to only 4%.

Partly to address that, the Ministry of Finance said Friday it has allowed provinces to tap 500 billion yuan ($70 billion) in unused bond quota within the debt ceiling to beef up fiscal health. The proceeds can be used to reduce off-balance-sheet borrowing, repay money owed to companies and for qualified provinces to expand investment, it announced at a quarterly briefing.

“Given the increased fiscal support, we believe there is potential for a rebound in infrastructure investment in the fourth quarter from the considerable decline in the July-September period,” said Jacqueline Rong, chief China economist at BNP Paribas SA.

Nominal GDP growth, which is not adjusted for changes in prices in the economy, slowed to 3.7% in the third quarter from a year ago, the worst reading since the end of 2022. That indicates economy-wide prices, measured by the GDP deflator, declined again for the 10th straight quarter, the longest deflation streak in recent history.

Looking forward, the government will “promote the implementation and effectiveness of more proactive and impactful macro policies, focus on stabilizing employment, enterprises, markets, and expectations, and steadily advance high-quality development to promote sustained and healthy economic growth,” the NBS said.

Although the full 15th five-year plan may not be approved and released until March, some of the decisions made this week should be announced when the plenum ends on Thursday. Governments and investors around the world are watching closely whether President Xi Jinping will put real policy weight behind plans to rebalance the economy toward domestic consumption, a shift that could mend years of trade imbalances that have hollowed out manufacturing around the world.

Top officials already signaled a greater focus on consumption after Trump’s reelection as president, ramping up spending in areas like education and employment. Until now, however, they’ve taken relatively measured steps and stopped short of setting a specific goal.

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